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Producers Should Consider Renegotiating Cash Rental Rates

Farmers may want to renegotiate cash rental rates on cropland, especially agreements that were negotiated in the past few years.

“Corn averaged above $6 a bushel for three years in a row, but it is not there anymore,” says Ron Plain, a University of Missouri Extension agricultural economist. Plain says the futures market shows corn prices are likely to be in the $4-5 range over the next couple of years, so some recent cash rental rates may be a bit high.
Although soybean prices haven’t dropped as much as corn, the forecast is for more bean acres and fewer corn acres being planted this year. Plain says the price gap between the two will narrow by fall harvest.

Plain says tenants also should talk with their landlords about the iffy weather the past few years and the cost of inputs, which have not come down at the same rate as crop prices.

“You take a look at seed costs, fertilizer costs. They’ve gone up a great deal over the last several years,” Plain says. “That trims the margin for the tenant and what is available to pay cash rent.”

It is a little different on the pasture side, he says. While renegotiated cash rents on cropland will be lower than the last couple of years, renegotiated cash rental rates on pasture probably will be higher than in 2012-2013.

“Pastureland is in demand,” Plain says. “We’ve got fewer acres of pastures as we’ve moved some of it into crop production. The other thing is that cattle prices aren’t coming down like crop prices. In fact, we’re looking at record prices for feeder cattle.”

Plain says tenants with locked-in rates on pastureland should make an extra effort to take care of fences and manage the pastureland so landlords are likely to extend contracts into 2015-2016.

Whether renegotiating rental rates for cropland or pastures, Plain recommends putting it in writing.

“People’s memories get a little bit fuzzy as to exactly what they agreed to, for how long, when the lease ends and those kind of things,” Plain says. “So getting that in writing can go a long way to keeping a harmonious relationship between the tenant and landlord, and develop a situation where both can feel comfortable and happy about the agreement they have.”

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